Irresponsible lending: When the buck stops with banks not borrowers

According to the Financial Ombudsman’s latest report, bank complaints are at a ten-year high. More people are feeling let down by their financial institutions than ever before – and one of the key failings is irresponsible lending.

Irresponsible or unaffordable lending is driving record levels of credit card complaints – with over 13,000 FOS cases about this issue so far this year. These complaints reflect how, in a time of intense financial pressures, millions of people are being saddled with debt from loans they should never have been given in the first place.

Banks must ensure their customers don’t take on more debt than they can afford to pay back – and it seems that they have been getting slack. In this article, we explain the laws on lending, how to complain, and make a claim to potentially clear your debts.

When is lending “irresponsible”?

Irresponsible lending occurs when financial institutions give loans, credit cards, overdrafts or other financial products like store cards and catalogues to people who are unable to repay them.

While we all have a responsibility to pay back any money we borrow, it is the responsibility of lenders to ensure that those they are selling financial products and/or credit to are able to keep up the payments without undue difficulty.

Failing to consider the financial risk to the customer, or adequately assess their creditworthiness, is a clear case of irresponsible lending.

Need to complain about your bank? Use Resolver

The Law

All firms – banks, creditors and lenders – who provide forms of credit facilities are regulated by the Financial Conduct Authority (FCA) and, in the case of credit cards and loans, under the Consumer Credit Act 1974.

The laws set out within the Consumer Credit Act 1974 stipulate that lenders are required to ensure their customers, in which they are providing credit to, have the ability to repay without being forced into financial hardship.

In providing funds or credit to people who cannot afford the repayments financial firms have the power to push people into financial hardship.

There are a few different categories of what the FCA would consider irresponsible lending:

Overlending

Approving loans that outweigh the borrower’s repaying ability and leave them burdened with debt.

Failing to Carry out Checks

Lenders must conduct affordability checks on their customers to determine their repaying ability. This takes into account their credit history and income. If they do not do this properly, they may end up approving an application for a loan, credit card or overdraft that they shouldn’t have.

Predatory Lending

In some extreme cases, banks deliberately target vulnerable individuals – such as those with poor credit scores – for loans or credit cards. They do this so that they can impose high levels of interest on their repayments. This is particularly cruel – and disempowers people who may have already been financially struggling.

Breaching CONC Rules

As our partner, The Complainer, explains: there is an “imbalance of power between lenders and borrowers” and so “there are rules regarding the nature of the relationship.”

If an “unfair relationship” was created by the lender’s failure to establish a suitable agreement, they could be in breach of the Consumer Credit Sourcebook (CONC).

An unfair relationship is a specific legal term and can cover a few different things – including previous dealings where the customer felt bullied by their bank or where the bank increased the borrower’s indebtedness in a way that was unsustainable or otherwise harmful.

To find out more about what constitutes an unfair relationship, check out The Complainer’s latest article: “What is an “Unfair Relationship” Between a Borrower and a Lender”

How to get redress

Breaching the guidelines for responsible lending results in the agreement being unfair on the customer – who then has the option to claim compensation. Any compensation granted would aim to redress the balance and restore the consumer to the financial position they would otherwise have been in.

Whether it’s payments relating to credit cards, overdrafts, store cards and catalogues, if you feel that your lender was ‘irresponsible’ – not running proper checks on your credit history or the affordability of payments – you can make a claim to hold them accountable and potentially clear your debts.

We have a free guide to help you understand the issue of irresponsible lending – and the best way to complaint to your lender.

Download our free guide

Our recommended provider, Credit Claim, is also helping people bring claims for compensation from their lender so that they can clear their debts.

Whether it’s a loan, credit card, or another financial product, claiming, rather than just complaining or going to court by yourself, will save you time and energy.

You should also be protected from legal costs later on – paying a fee only if you are awarded compensation.

Claim for irresponsible lending

If you have any thoughts on this topic, or any other consumer issues you would like us to cover, feel free to get in touch with us at support@resolver.co.uk.